Pakistan must shift to sustainable, export-led growth: FM

October 20, 2026 (MLN): Pakistan’s twin deficit has fallen to 2.6% of GDP at the close of last fiscal year from a cumulative 12.5% when the macro-stability journey began, with fiscal consolidation playing a big part, Finance Minister Muhammad Aurangzeb said at the Pakistan Tax Conference.

He said last fiscal year’s fiscal deficit was at a 22-year low, and the country has posted three consecutive years of primary surpluses. This came on the back of FBR tax-to-GDP rising to 10.3% from 8.8%, with revenues up 40% over the last two fiscal years.

The 1.5% increase in tax-to-GDP over the last two and a half years comprises 0.9% from enforcement, meaning leakage, theft and corruption were stopped, and 0.6% from new policy measures. Going forward, deepening through enforcement will take a bigger role while the focus shifts to broadening, he said.

He said the FBR Transformation Program, covering people, process and technology, is being led by the Prime Minister himself, with weekly stocktaking, including one held yesterday. Taxation remains a critical part of structural reforms, alongside energy, SOEs, privatization, public finance, pension reforms and tariff reforms, he added.

On growth, the Finance Minister said the economy contracted a few years back and has since moved from -0.3% to around 3.7%, though he said whether it is 3.7% or 3.65% is not material.

The priority now is moving from stabilization to growth, and the growth must be sustainable and export-led, he said, noting that liquidity-fueled, consumption-led growth in the past led to boom-and-bust cycles that will not be allowed to repeat.

On the external side, he said reserves had fallen to two weeks of import cover but have recently risen to more than three months, the highest ever in the country’s history. He said the quality of reserves matters as much as the quantum, as they have not been built on debt.

External liabilities rose from $55bn to over $100bn between 2015 and 2022, adding $6-7bn of debt per year, while in the last four years external debt has increased by $4bn, or less than $1bn per year. He said the reserves have been built through State Bank interventions.

To support sustainable growth, he said tax design must be led by economic value considerations rather than by making the math work, although the math still needs to work. He said the last budget carefully recalibrated taxation around exports and export-led industries and gave a direction of travel.

He listed broadening the tax base and simplifying the tax code as ongoing reforms, and stressed policy predictability and continuity for the private sector. “We cannot continue to give surprises to private sector investment at every single budget,” he said.

The finance minister named four enablers: political consensus, including the way the federal government works with provincial governments; stronger institutions; taxpayer trust, which he called probably the most important, through restoring credibility to the tax authority; and clear communication on structural reforms and taxation.

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